Is the Market Portfolio Mean–Variance Efficient?

Robert Grauer

Chapter 47 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 1763-1787 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter investigates the characteristics of a subset of the infinite number of Security Market Lines (SMLs) that ensure the market portfolio is mean–variance efficient both at a point in time and over time. The analysis employs raw rather than excess returns. With some specifications of the SML, the risk-free rate exceeds the market portfolio’s equilibrium mean, which is inconsistent with CAPM theory. At a point in time, a Hotelling’s T2 test may reject most of the SMLs or none of them, although other mean–variance criteria may indicate some are economically reasonable and others are not.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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